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U.S. Companies in France Says Tax Situation Better, Economy Not

U.S. businesses operating in France say the French government’s effort to cut taxes has made the country a better place to operate. Still, many are worried about the impact of Europe’s debt crisis and don’t plan to add workers, according to an annual poll.

“Despite the financial crisis, France has advantages to attract foreign investors,” Marc-Andre Kamel, head of Bain’s European retail practice, said at a press conference today in Paris. “But the debt crisis is like a boomerang that keeps coming back.”

Sixty-seven percent of U.S. subsidiaries in France said the euro debt crisis was damaging investment plans, according to the 12th annual poll by the American Chamber of Commerce in France and consultants Bain & Co.

President Nicolas Sarkozy’s decision to raise the minimum retirement age to 62 from 60 was seen as positive by 45 percent of respondents and neutral by 49 percent. A tax credit for research was seen as positive by 70 percent of respondents. Still, 45 percent said the elimination of the “professional tax,” a company tax based on invested capital, was insufficient to make France’s tax system more attractive and only 12 percent said it was sufficient.

The poll was conducted before the French government announced a cut in social charges paid by companies, and before an extended bank lending operation by the European Central Bank helped bring down bond yields in troubled euro countries.

Overall, 56 percent of respondents said France was an “attractive” place for direct investment, compared with 46 percent a year ago.

Companies Surveyed

This year’s poll was based on questionnaires sent out at the end of November 2011 to about 1,000 U.S. companies operating in France. The 59 companies that responded employ 110,000 people and have annual revenue of 25 billion euros ($33 billion).

France was the fourth largest recipient of foreign direct investment in 2011, behind the U.S., China, and Hong Kong, according to the United Nations. It’s the second largest recipient of U.S. investment in Europe, behind Britain.

Google Inc. opened a research center in Paris last year, Dell Inc. is creating a data center in the south of France, and Inc. is building a logistics base.

Looking at the French economy over the next two years, 20 percent said the outlook is “positive,” down from 51 percent last year. Only 25 percent said they planned to increase the number of workers in 2012-13, compared with 38 percent who a year ago expected to increase hiring.

Rigid Labor Rules

As in past years, the poll found that France is well rated for its geographical position and quality of its work force. It’s rated similar to other countries in company taxation, and is rated worse for rigid labor rules and cost of bureaucratic procedures.

Eric Boustouller, president of the American Chamber in France, said this year’s French presidential election doesn’t seem to be affecting the mood of U.S. companies, even as Socialist challenger Francois Hollande has called for a 75 percent tax bracket on income above 1 million euros.

“Companies stay above the fray because they make investment based on 10, 15 years,” said Boustouller, who is the head of Microsoft Corp.’s French unit. “They don’t make decisions based on campaign declarations here and there.”

The poll showed that 49 percent of company heads think the election will be neutral for their company, while 35 percent said it would have a negative impact.

U.S. companies in France employ 800,000 people directly and 2 million indirectly, the Chamber says, and have annual revenue of 30 billion euros.

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